{{Article.Title}}

{{Article.SubTitle}}

By {{Article.AuthorName}} | {{Article.PublicationDate.slice(6, -2) | date:'EEEE, MMMM d, y'}}
{{TotalFavorites}} Favorite{{TotalFavorites>1? 's' : ''}}

In the story of a business, succession can be the most challenging chapter. Owners are often so consumed with growing their companies that they put off succession planning—but they do so to their own detriment. With a large number of baby boomers set to retire over the coming years, owners who are not prepared for succession will find themselves at a competitive disadvantage when it comes to transitioning their business.

Seventy percent of companies are projected to change ownership during the next seven years, according to the California Association of Business Brokers. Once today’s leadership has an idea of when they are ready to hand over the reins of the company, it is a good idea to start planning as far out as possible from that date—ideally five or 10 years out.

Business owners in construction or a related industry may be asking themselves, “Where do I start?” While succession planning isn’t quite as simple as clearing off the desk for the new executive, it doesn’t have to be an excruciating process. Business owners should ask themselves the following three questions to start the succession planning process off on the right foot.

1. What is my personal financial status?

For many business owners, their companies represent their life’s work and the cornerstone of their financial security. That’s why it is so important for owners to understand what financial outcome they need to achieve through succession before they set the process into motion.

Business owners shouldn’t only examine the company’s financial status; they also should consider their personal financial situation as they transition out of company leadership. It is a mistake to operate on estimates of personal net worth or assumptions about how much is needed to maintain the owner’s quality of life post-succession.

A best practice is to enlist a certified financial planner to review the owner’s finances. Financial planning experts can offer a professional assessment as to whether the owner is economically secure enough to turn over the business at this time or if it makes sense to stay at the helm for a bit longer to shore up personal finances. Thinking this aspect through can help prevent economic insecurity for the owner after they’ve handed over the reins of the business.

2. What are my business and ownership goals?

Owners should ask themselves how they envision the next chapter of their business unfolding. Who do they see at the helm: an outside buyer, a key manager or a family member? In any scenario, do they have a particular entity or individual in mind? Far too often, owners have not given these questions careful consideration or, if they have, they keep their ideas to themselves.

It is important to be as open and transparent as possible with the potential buyer or family successor before setting any succession plan in motion. This allows owners time to gauge interest, assess qualifications and determine financial capabilities to take on such a role. Plus, it allows time to think through new options if the first round does not pan out.

3. What is my business worth?

Just like an owner’s personal financial status, it is important to avoid dealing in hypotheticals as far as the value of the business is concerned. Owners may have a sense or think they know what their company is worth, but it is important to have a comprehensive understanding of the full value of the business.

There is no substitute for an objective valuation conducted by a third-party expert. This ensures the owner will get a solid evaluation of the company’s current worth, which then can be compared to the owner’s personal financial situation as identified earlier in the process. Seeing alignment between these two assessments is a green light that succession can proceed on financially stable ground. If the two are out of alignment, owners can pause and take a look at what is driving down the company’s value and develop a strategy to increase it moving forward.

For business owners, the conclusion of their time with the company is just as important as the beginning. Investing the time to think through these important considerations before starting the succession process can pave the way for a smooth business transition.

Print

 Comments ({{Comments.length}})

  • {{comment.Name}}

    {{comment.Text}}

    {{comment.DateCreated.slice(6, -2) | date: 'MMM d, y h:mm:ss a'}}

Leave a comment

Required!
Required! Not valid email!
Required!